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Central Bank Backs Key Importers amid Fears of Dollar Shortage

Oct 02

Central Bank Backs Key Importers amid Fears of Dollar Shortage

Lebanon's central bank is to facilitate access to dollars for importers of petroleum products, wheat and medicine, state media said Tuesday, following fears of a dollar shortage and possible currency devaluation.

Local media said last week banks and money exchange shops were rationing dollar sales in the country, where Lebanese pounds and US dollars are used interchangeably in everyday transactions.

Petrol station owners threatened to strike over a lack of dollars at a fixed exchange rate to pay for imports, while flour producers complained over much higher rates from money changers.

The central bank on Monday adopted the measure to allow certain importers to obtain dollars at the bank rate to pay for key imports.

'Banks that issue letters of credit for the importation of petroleum products (petrol, fuel oil and gas), wheat and medicine will be able to ask the Banque du Liban to ensure the value of such credits in US dollars,' read the decision published by the National News Agency.

The mechanism requires that a 'special account' be opened at the central bank, and at least 15 percent of the value of the credit deposited in it in US dollars, as well as the full value in Lebanese pounds, it said.

The central bank will take 0.5 percent from each transaction.

Lebanon has had a fixed exchange rate of around 1,500 Lebanese pounds to the dollar in place since 1997.

Central bank governor Riad Salameh last week denied that the country was facing a currency reserve crisis, but it has become very difficult to withdraw dollars from ATMs in Beirut.

Lebanese economist Jad Chaaban said the central bank measure was a welcome short-term solution to allow key products into the country.

'It's a good measure to contain the crisis on importing these commodities and to keep the prices in check,' said the associate professor at the American University of Beirut.

And it will 'ease pressure on the non-bank exchange rate,' he said.

But he also called for the broader easing of capital controls keeping dollars in the banks, and 'fundamental economic reforms' including to reduce dependency on imports.

Economic growth in Lebanon has plummeted in the wake of repeated political deadlocks in recent years, compounded by eight years of war in neighboring Syria.

Lebanon's public debt stands at around $86 billion -- more than 150 percent of gross domestic product (GDP) -- according to the finance ministry.

Eighty percent of that debt is owed to Lebanon's central bank and local banks.

In July, parliament passed an austerity budget as part of conditions to unlock $11 billion in aid pledged at a conference in Paris last year.